Robbery at J.P. Morgan

Team Obama tries to destroy Jamie Dimon for not toeing their line.

Updated Sept. 29, 2013 6:13 p.m. ET

Government lawyers are backing up the truck again at J.P. Morgan ChaseJPM-0.74% to extract another haul from the country's largest bank. State and federal attorneys have burrowed close enough to J.P. Morgan's vault that the bank is considering a staggering $11 billion settlement related to mortgage-backed securities, including one of the largest fines ever against a single company.

Trying to keep an accurate tally of the government investigations of J.P. Morgan has become a full-time job. This week the New York Times counted investigations in at least seven federal agencies, while the Journal counted seven investigations in the Justice Department alone, plus inquiries at other agencies.

Keep in mind that this is one bank that did not need taxpayer assistance in 2008 or since. And this partly explains why Morgan CEO Jamie Dimon is the Obama Administration's favorite Wall Street target. Washington in this era prefers dependent banks that quietly accept their role as money pots to be raided when politics demands. Mr. Dimon keeps deviating from the Obama script.

***

First the CEO explained how the rhetoric about the Dodd-Frank financial reform wasn't matched by its costly and confusing regulations. Though a lifelong Democrat, he said publicly in 2012 that Washington's antibusiness rhetoric was a drag on confidence that hurt the recovery. He even hinted that he preferred a change in the White House.

Related Video

All of that gave the regulators motive to dislike Mr. Dimon, but their opportunity to punish him came when J.P. Morgan made serious errors in failing to oversee the "London Whale" trades. The trades cost shareholders $6 billion and were even costlier to the bank's reputation as a risk manager. Senior managers and traders were fired, Morgan directors did their own probe, and shareholders have stuck by Mr. Dimon.

But that wasn't enough for Democrats, who decided the trading blunders were the greatest financial scandal since Enron. Senator Carl Levin unleashed his investigators on the bank, though the trade losses had no public costs. But the politicians were furious because the problems came to light almost two years after the enactment of Dodd-Frank. This punctured the Beltway myth that the same regulators who had failed to foresee the last crisis now had the power to spot the next one.

And now the feds are making Morgan's shareholders pay for this embarrassment. Morgan investors recently had to pay another $920 million to settle U.S. and U.K. charges related to the Whale. The charges are that the bank failed to supervise its traders and had compliance deficiencies. Yet how did the government not know of the deficiencies when regulators all but live at the bank and J.P. Morgan may be the most regulated institution in the world? They never acted to stop those deficiencies until Morgan itself reported them.

Now each day seems to bring details of another government investigation—about mortgage underwriting, mortgage-backed securities, energy markets, credit cards, other Whale-related cases and more. Since 2008 J.P. Morgan has spent more than $18 billion on legal expenses.

The Journal recently reported that the bank planned to add 5,000 employees to its risk and compliance teams this year—bringing the total to 15,000 from 8,000 last year—and spend an additional $5 billion. This year J.P. Morgan has been holding 50 meetings per month between its senior executives and regulators.

ENLARGE

Morgan CEO Jamie Dimon
Agence France-Presse/Getty Images

The irony is that Mr. Dimon was the rare bank CEO who avoided the credit excesses that ruined so many competitors. Despite regulations that encouraged banks to gorge on mortgage securities, he stuck to a sensible diet. Even regulators viewed J.P. Morgan as such a bulwark of sound banking that they called on it to rescue failing firms like Bear Stearns.

Yet the current charges include alleged wrongdoing by Bear Stearns before regulators begged J.P. Morgan to rescue it, as well as alleged wrongdoing by Washington MutualWMIH0.40%before regulators begged Morgan to buy that bank too. In the heat of the crisis in September 2008, few big banks were healthy enough to buy WaMu. Then-FDIC Chairman Sheila Bair said the situation "could have posed significant challenges without a ready buyer." Referring to J.P. Morgan's willingness to step forward, Ms. Bair said, "Some are coming to Washington for help, others are coming to Washington to help." Now Washington is suing Morgan for having helped.

Even more preposterous is that the alleged victims in the government suits are almost all large institutions, including Fannie Mae and Freddie Mac. The government portrays them as unwitting investors in mortgage securities when their own titanic mortgage bets triggered a $188 billion taxpayer bailout.

Who would have guessed that five years later the great villain of the mortgage crisis would be the guy who not only didn't create it but helped to end it? Meanwhile, in 2008 Jack Lew helped to oversee a disaster at Citigroup that would require serial taxpayer bailouts from Treasury and the Federal Reserve. Mr. Lew escaped New York for the Obama Administration and five years later he runs the Treasury.

Mr. Dimon's worst sin in Washington's eyes may be that J.P. Morgan earned record profits last year despite the Whale losses. Investors continue to express their view that—political assaults aside—the underlying enterprise is healthy. In July Morgan stock hit its highest point in more than a decade. The shares have since declined but still trade above their level prior to the Whale news in 2012.

***

All of this is a lesson about the politicized world of finance after Dodd-Frank. Mistakes such as the Whale trades ought to be a matter settled among shareholders, directors and management. But politicians and regulators now believe that the big banks all work for them. Washington is looting J.P. Morgan, and may yet string up Jamie Dimon, as a lesson in what will happen to any banker who dares to disagree with his Washington bosses.

Our world today is a "pig world". It all depends on how you use the word "pig". One way is the fable of the hen and the pig. They planned to open a restaurant serving eggs and bacon. The "pig" took the position that he had to make "a commitment", and that the hen, only had to" participate". The same little fable applies to Jamie Dimon and Barrack Obama. Being a Columbia and Harvard student, but determine to become a public servant, Obama was always thinking how he blew a potentially great deal of wealth. Men and women, like Jamie Dimon, or "the wall street types", really greatly disturbed Obama. So much, that he had a "hidden agenda" of doing everything in his power to satisfy his narcissist state of mind (ego). This feeling and sickness led to major character defects, encouraging Obama to go to any lengths to have a wealth far and above any of these "wall streeter's" (ego run wild). So as president, he can do just about anything he wants to gather wealth. The moral of the story is; Obama wishes to be a hen, gathering all the eggs, while the pigs all get slaughtered. Definitely a state of mind that will at some time get a lot of egg on your face!!

Jamie learned pay people to do as you say and you can continue to steal. No Journalist ever reported the years of crimes JP Morgan did over 20 years and the rush to illegally take homes from seniors, people who had no mortgage and even soldiers fighting in the War as their mortgages were directly paid. Even when Jamie Dimon openly lied in the Senate hearings the Press praised him. Well like the GodFather of the Mafia everything comes to an end. Charles Keating learned that with the Keating Saving and Loan Scandal. Jamie Dimon broke the law and violated the Sarbanes Oxley Act. Spin twist or lie Jamie is guilty. Already people that once bowed to Jamie are moving away and soon will say they never heard of him.

11 Billion. what's that? Two months of JP's free monthly participation in selling junk o the Fed? One months? The 11 million just goes to the Treasury to assist in, ultimatey, Bond buying,that goes thru the Primaries from the Fed Fiat machine... one could say J.P.s 11 billion is simply going to help J.P. in the longer term.

Lets all laugh as seemingly, fines are placed to protect Americans, but only exist as a measure of success between the Primary Dealers.

The government is acting like a sixteen year old kid that thinks it knows everything."If there isn't justice for the people let there be no peace for the government." Doing the same thing over and over is insane. Fix America First. Prioritize. Recycle America ,turn things around. The Government should fear the people, opposite of how it is now. the government should protect people and regulate corporations not protect corporations and regulate people. We need to Build a good foundation then rebuild. Reinstate common sense. Create Accountability and most of all treat our cancers greed , ignorance and self-entitlement. Our society runs the way it does because it is designed that way for the rich by the rich. There are many common sense simple ways to change things to make a better world to live in. Until we can prioritize correctly , have accountability , and worry about the American instead of the American dollar things will remain perverted. Anyone can find fault -- it's not a sign of anything other than moderate brain activity. It's much harder to offer creative criticism that actually improves the situation for everyone involved, UNITED we stand divided we fall...there is only one race the HUMAN RACE all the divisions of political parties and skin color have demoralized this country into a sewage plant of lying stealing ignorant greedy self-entitled hypocritical idiots the government has had too much money power and time with too little results actions speak louder than words. Being successful doesn’t necessarily make you great. What makes you great is when you reach back and help somebody else become great.

Good article. Mr. Dimon and Wall Street serve the purpose of scapegoat and mark( suitable victim) at the same time. And to think the two dem Senators that fostered the financial crisis have financial legislation named for them.

I don't think this is a political vendetta against the bank. Jamie Dimon and his management team told their regulators that the bet on CDS was a "hedge" by their Chief Investment Office (CIO) and that they were protecting the interest rate risk of their large retail customer deposit base. However, as it turned out, it was another way for JP Morgan to speculate in the credit markets because these CIO traders were racking up profits. Just see how much of a bonus was paid to Ina Drew before she was forced out/resigned and it is easy to recognize that JP Morgan was not minimizing interest rate risk but was putting on one-way bets on a CDS index. In summary, it is the regulators whom JP Morgan lied to that are now bent on getting their "pound of flesh" such as the OCC which is their primary regulator and was on-site all that time.

The Fed's litigation and private litigation are doing the same for Bank of America, which saved Countrywide and Merrill Lynch from going under at the request or begging of the Feds. BAC Stock went from $30 a share to as low as $3.97 in the process. They only took money from the feds, that they paid back with interest, to help with the two acquisitions they acquired to help the feds and country. What a nasty payback for their help.

A lot of these comments would be right on target - if JPM was strictly an investment bank playing with the partner's money. Unfortunately JPM decided to be a commercial bank.

90% of the money it plays with comes from depositors ($1.2 trillion) and other folks who decided to lend JPM their money. Since JPM only has 10% of their own money in the game a few bad bets can wipe out their capital and put the depositors and lenders money at risk. Therefore they need to learn how to manage risk like a commercial bank - not an investment bank. It seems these "Masters of the Universe" have a learning disability. They still do not get it. To help them focus their attention on risk management they got $920M fines. This is a wrist slap for a company earning $7B-$9B each quarter - hardly an attempt to fund the US deficit.

As for JPM not needing TARP - it there had been even a 20% run on JPM deposits back in 2008 JPM would not have been able to cough up the cash. The fact that there was no run on JPM deposits is because TARP assured the depositors that their money was safe. Therefore while JPM is correct that it did not ultimately need TARP cash, he glosses over the fact that JPM did need the confidence that TARP created. If you think a bank run was unlikely, your are forgetting the $16.7B that depositors pulled from WaMu in 9 days in Sept 2008.

As for the government begging JPM to buy Bear Stearns, JPM paid only $1.2B for Bear Stearns and got a $29B non-recourse loan from the FRB to sweeten the deal.JPM picked up WaMu (which it was planning to buy anyway) for only $1.9B. I suspect JPM felt these were good investments - not charity.

Now as for burdensome regulation - JPM's revenues and earnings are hitting record highs - this in spite of reserves for litigation.

Finally as for investors standing by JPM - while the overall US stock market keeps hitting new overpriced highs, JPM went south - now down around $52 from its high of $56 in August. Enough short term investors have panicked that it is now selling at book value with an 8.7 trailing P/E. JPM stock looks like a buy to me or is this the wrong place to discuss investment opportunities?

I just hope that any regulatory infraction that may have occurred be thoroughly challenged in court and whatever judge sits on any settlement due, do his/her due diligence for both parties such that justice is done, and not some vindictive political ax sharpened.

The political risk in the US is greater than in any other country in the world. Our citizens are not worthy of the liberty they inherited and are giving away every day. But the good thing is that we get what we deserve, as a whole. No rule of law? It will bring us all down.

if dimon did not have such a huge profile , he would be gone a long time ago. its not just obama, its the Fed itself. the fed has operated well beyond the law for a great many years. it acts as judge and jury in determining whether a bank CEO should be disbarred from his job. there is no appeal to even their most vindictive decisions. they have wrecked the careers of many very worthy men and women on little or no evidence other then personal dislike. cornelius bond

I said it yesterday and I will say it again. No good deed goes unpunished. Jamie stepped up when no one else had the capital to step up and avoid catastrophe. Now his shareholders are being extorted by the government. The author makes an excellent point that certain "Resident Regulators" have offices at the bank in New York and London. Where were they, what did they know or should have known and why are there no repercussions on that side of the ledger. I hypothize that the real answer is that Jamie is in the crosshairs and if he owned a hotdog stand the food and drug administration would be looking for something wrong.

That the government would go against JP Morgan when it was Morgan, the only well run bank at the time, that took the government's chestnuts out of the fire in the first place, is the most outrageous miscarriage of justice and abuse of power. Shame on you President Obama and Attorney General Holder. It is time to stop the childish nonsense and grow up.

Why am I supposed to feel outrage when when government turns on one of it's own crony capitalists like a rabid dog? This stuff is inevitable when the line between government and corporations disappears. Dimon was a golden boy during the bailout era and both he and his bank have profited immensely from it. I won't be shedding tears for any of the big banks as the monetary collapse plays out.

Finally! What took the WSJ so long to decide that this Admin (and for that matter all the states) is robbing from the shareholders, employees and depositors of JPM? I'm glad that the WSJ chose to mention the Dodd-Frank act in this story. But I think they could have done better.BUT you did not note which specific laws were broken to result in a 11 BILLION DOLLAR FINE! For close to four years now I have been reading stories how Fed and state authorities have been levying fines on the big money center banks. Every story mentions the mortgage crises but no story details the exact law that was violated. Maybe that is your next story?

At the beginning of their term the Obama admin considered taking over the biggest banks in an overt fashion, then drew back when they worked out that it would make their real objectives too obvious. Now we know why. You can control an institution via legal harassment and extortion. No need to actually make it a department of government. In terms of the history of progressive politics, it's payback for J. P. Morgan's takeover of political parties 90 years ago, which first cemented the marriage btw big capital and big government. Now: the few remaining capitalists who are still unintimidated by the pols should take note what happens when you start giving in to their demands. Time to stand up for economic freedom.

The "too big to fail" banks are no longer private enterprises any more than, say, the Post Office or Navy are. Stop expecting big banks to be anything other than divisions of the government. It's over.

Chicago-Style politics is nothing more than extortion. Sometimes it comes in a velvet glove, but it always comes with an iron fist.

Kudos to Mr. Dimon for having the courage to recognize the poison of this administration and to stand up for his principles and his bank. He is fortunate to have the deep pockets and high profile necessary to fight for justice. Pity those with less courage and fewer resources.

General Petraeus wouldn't go along with lying about Benghazi and his private life became public knowledge. He resigned. General McChrystal gives an interview to Rolling Stones with unflattering comment about Obama administration. He resigns. Lois Lerner targets Obama opponents using IRS. She retires with full benefits. Now Dimon is targeted because he didn't toe the line for Team Obama. There's a pattern here that is destroying the U.S.

Everyone: Get a copy of 'Crony Capitalism in America' by Hunter Lewis if you want to understand what's REALLY going on here. Political extortion in real time. Right before your very eyes. Obamanomics. 101.

The Justice Dept. has excessively fined banks, Pharmaceutical companies, Oil companies, individuals at odds with the EPA, and is pursuing lawsuits for vouchers for kids, as well as " disparate impact" cases.

Meanwhile, we have not heard a word about the IRS, the FBI in Benghazi, nor the NSA.Might as well close the Dept. down and put it in the West Wing of the White House.

The most telling comment (and fact) here is that the government is going after JP Morgan for alleged abuses that occurred BEFORE the acquisitions of Bear and Washington Mutual. JP Morgan comes to the rescue (as they have throughout the history of the US) and now receives a massive fine for doing so...... It is no wonder there is little confidence in the Administration's ability to work with the private sector.

Jamie Dimon was NOT put under Oath when the was called before Congress about the Bailouts ! So he can say anything even LIE about the bailout money or the need for it ! The Fact remains they took it and used it ! If they did not need it why take it. Just because the Federal Government gives you a check that does not mean you have to cash it ! They tell Americans that all the time about over payments !

"Senator Carl Levin unleashed his investigators on the bank, though the trade losses had no public costs." That this man has the gall to "unleash" investigations of anything financial in the glow of his home state of Michigan's Detroit mess is nothing short of a display of the lowest form of government assessment standard. He who cannot clean his own house has absolutely no right to criticize, let alone evaluate, another's home. Levin is retiring but I'm betting Michigan will replace him with another Levin clone.

You are simply wrong that 90% of the money comes from depositors. From there it gets worse. ...Finally just because a company has record earnings and revenues what reason is that for attacking them.?.. other then the liberal mantra for taking more, think IBM, Microsoft and Apple. All had one thing in common, they became too profitable according to government, so since taxes weren't enough to keep them on the farm, they sent the justice department after each... This is the reason companies require lobbyists. None of the companies had them until they were sued for being great enterprises. Lobbyist are required today because Congress or a bureaucrat (unelcted) can destroy your business (think coal)

All financial institutions are being kept afloat through QE. As and when the Fed begins to taper, expect a huge hit to their capital base as their huge fixed income inventory, sub-prime assets, and Level 3 assets get priced down. The 3rd quarter is going to really bad due to lack of trading revenues. C, MS, GS and Jefferies have already guided lower. I personally feel that the stock market in general, and financials in particular, are due for a major correction in the coming months. The smart money, a.k.a. PE and hedge funds, is selling anything that isn't nailed down. Stay liquid.

Should the American people accept the fact that government entities can target and dismantle businesses at will, simply for being political opponents? It's time for Americans to start understanding what precedents are being set when they choose to allow their government to engage in such heinous acts.

Government exists because the people allow it to exist, not the other way around. Pitchfork or Torch?

Banks have been franchises of the Government for the last 100 years (That is what the Federal Reserve System is all about.) Banks exercise the Government's power to create dollars through what is called "fractional reserve banking", and are allowed to reap vast profits in return for providing credit. They got bailed out in 2008-9. Maybe Dimon's bank didn't need the same magnitude of bailouts as many others, but the system as a whole was bailed out by the government. Look at this from Obama's point of view. Obama allowed all the bankers to escape jail for the 2008 bust. His AG even told Congress that they are too big to jail. He bailed them out and gave them a free pass for past wrongdoing, and now he expects loyalty in return. Jamie isn't showing enough loyalty to his master - or perhaps he is confused as to who is the master and who is the servant?

No one is likely to shed a tear for a Wall Street Bank, mainly due to the fact that Washington has done such a good job pinning the financial collapse on them, instead of their own "put everyone in a house" policies. But this is one of the more egregious abuses in government power that we've seen. Playing second fiddle to only the IRS Scandal and Congress' Obamacare Exemptions.

Scandals and corruption have become such common place within our government that I believe people actually accept it. Americans feel powerless to stop these government entities and instead sit in silence. Meanwhile only < 20% of our population are actually happy with Congress' actions.

Maybe it's time to remind our representatives that our government, just as any government, derives it's power with and only with the consent of the governed. Maybe it's time to sign up for pitchforks and torches...

Hey genius the Feds FORCED Goldman, Wells, and JP Morgan to take TARP because if they refused it would have signaled they were healthy and there would have been a run on the TARP recipients. Get a clue before you open your pie hole.

Using Levin who is retiring to go after Dimon is a mafia tactic. Use the man who has least to lose to do the dirty work for the organization. Levin will retire with full benefits and not suffer the consequences of his action--just like IRS's Lois Lerner.

Like I posted ! The Government could not make them take the money ! They can write a check you don't have to cash it ! Or they could have put the money in an Account for ALL Americans to watch the interest grow daily on the Float ! Wow bringing up the fact that he was NEVER sworn in to testify made you mad ? Is that you Jaime ?

This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com.